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How Wisconsin Manages Divorces That Include a Business.
Facing divorce when you own a business near Random Lake, Mequon, or Sheboygan, WI, brings unique legal and financial complexity.
Although almost every divorce requires determining child support, custody, maintenance (also known as alimony), and division of marital property, the process can become significantly more complex for business owners, high-income earners, and those with valuable assets.
Our highly experienced and compassionate family lawyers fully understand the anxiety that comes with determining the future of the company you built.
A business is often a couple’s most valuable and complicated asset, and you must precisely know how Wisconsin courts handle the division of business assets in a divorce. Your well-versed family lawyer will explain that the answer lies in Wisconsin’s specific approach to marital property, which starts with a strong and strict presumption of equal division in every divorce.
Wisconsin’s Approach: Presumption of Equal Division
Wisconsin is a community property state. This legal fact significantly shapes how courts divide marital assets, including a business. Under Wisconsin Statute 767.61, the court generally mandates that all property acquired by either spouse before or during the marriage must be equally divided between both parties. The law creates a powerful presumption that almost all marital property is to be divided equally (50/50).
This initial presumption typically applies to business or professional practice, whether one spouse owns and operates it or both spouses are involved.
The court treats the business interest, or the value created during the marriage, as part of the total marital estate subject to division. Only property acquired by gift or inheritance, and kept entirely separate, may be excluded.
The Marital Estate and Business Ownership.
When determining the marital estate, the court examines the history of each asset to determine its actual value. A business started during the marriage is almost always entirely marital property. But a business started before your marriage can be much more legally complicated.
The pre-marital value of a business is generally considered separate property. But any appreciation in value that happened during your marriage due to the active efforts of either spouse is considered marital property. Our competent and diligent family lawyers will always work closely with you to accurately trace the financial history, thereby helping the court understand which portion is subject to division.
The Critical Step: Business Valuation in Divorce.
Before a business can be divided, its value must be precisely and accurately determined. Valuing a small business, professional practice, or a closely held corporation near Mequon or Sheboygan is often the most contentious and costly aspect of a high-asset divorce in Wisconsin.
The goal is to determine the business’s Fair Market Value. This legal process is both an art and a science, requiring specialized, experienced, and thorough legal expertise that goes far beyond the standard analysis of simple financial statements.
Why You Need Expert and Deeply Experienced Legal and Financial Help.
Tax returns and simple balance sheets rarely show a business’s true worth. Business owners often take various forms of compensation or perks that an appraiser must formally “normalize” to show a hypothetical buyer’s actual cash flow.
Our Wisconsin divorce attorneys take pride in providing dedicated legal representation in high-asset divorce cases. Our lawyers can work with forensic accountants and business valuation experts to determine the proper value of your business interests. These experts use one or a combination of three primary methods:
- The Asset-Based Approach: This involves adjusting the business’s book value to reflect the fair market value of all its tangible assets (like equipment and real estate) and intangible assets (like trademarks and goodwill). This works well for businesses with significant hard assets.
- An Income-Based Approach: This method values the business based on its ability to generate future income. A common technique is the Capitalization of Earnings method, which involves selecting a representative earnings figure and applying a capitalization rate based on the associated risk.
- Market-Based Approach: This compares the business to similar companies that have recently been sold in the market.
Our approachable and well-versed family lawyers strive to ensure the court uses an accurate, fair valuation method that reflects the true financial picture of your company.
Allocating the Business: Three Common Scenarios
Once the value is established, the divorcing couple, or the court, must decide how to divide the asset’s value. Since you cannot simply cut businesses in half, three options are most common:
- The Buyout: This is the most frequent and preferred solution, especially for operating businesses. The spouse who wishes to keep the business buys out the other spouse’s marital interest. The “payment” is often made by awarding the non-owner spouse a greater share of other marital assets, such as the family home, retirement accounts, or investment portfolios. For example, let’s say your marital estate is valued at $1,000,000, and the business’s marital value is $400,000. In this case, the owner-spouse would need to provide the non-owner spouse with $200,000 in value from other assets to offset the equal division of the property. This allows the business to continue operating without interruption.
- The Sale and Division of Proceeds: If neither spouse can afford a buyout, or if both parties agree, the court may order the business to be sold to a third party. The net proceeds from the sale are then divided equally as part of the overall property division. This option requires time and cooperation, often leaving the business’s fate dependent on a buyer’s offer.
- Co-Ownership: In usually rare cases, divorcing spouses may agree to continue owning the business together as co-owners or shareholders. This is generally only successful when the relationship remains amicable, or if a detailed, binding agreement outlines all future management decisions, buy-out provisions, and profit distributions. We caution clients to consider this path only after a thorough analysis of their post-divorce relationship and the business’s structure.
Deviation from 50/50 Division: When Unequal Division is Possible.
While Wisconsin courts begin with the presumption of equal division, they may alter this distribution after considering the factors listed in the statute. A deviation from 50/50 is not standard in Wisconsin, but it is possible in high-asset cases where unique circumstances exist.
Factors the court considers when doing this may include:
- The length of the marriage.
- Property each party brought into the marriage.
- Whether one party has substantial assets that are not subject to division.
- The contribution of each party to marriage (including homemaking and child care).
- The age and health of the parties.
- The earning capacity of each party.
- The tax consequences to each party.
Our passionate lawyers meticulously and strategically build a case to show the court the complete picture of your financial life, including all contributions and needs, to pursue your optimal outcome.
Our Deep and Passionate Commitment to Our Clients.
Divorces involving significant assets, such as a family business, in communities like Random Lake, Mequon, and Sheboygan require more than just legal knowledge; they demand dedicated advocacy and deep-rooted experience.
At HKK Law Offices, our clients’ experience is our top priority. We are dedicated advocates who are accountable, approachable, and responsive. Our legal team brings tenacity and talent to guide you through the property division process.
We tenaciously strive to explain complex legal concepts in plain English so you always understand your options, whether it concerns business valuation, maintenance, or child custody.
If you are a business owner or high earner in need of clear, communicative legal counsel, we invite you to contact us as soon as possible. So, call us today to schedule a free consultation on your unique case in Random Lake at 920-782-7757, Mequon at 262-360-6930, or Sheboygan at 920-635-2992. We are ready to advocate fiercely and empathetically for your solid and lasting financial future.
